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Every collective investment brings opportunity - but also opportunity cost.

Last post, I humbly introduced the first of two economic concepts I believe are key to a better, healthier society. I am not an economist, but my work in Global Health has brought an appreciation for some of the basic theories upon which our economic systems are based.

And their wider implications, and applicability.

Starting with negative externalities, we explored the true and hidden costs of junk food. The ‘elephant in the [health] room’, this idea of negative byproducts is a concept that many companies, governments and organisations would rather we keep under wraps.

This week, a second important economic concept that I feel everyone could benefit from understanding and one that shapes my view of politics and public health.

Concept #2: Opportunity Cost

When I do ‘option A’, it comes at the cost of doing ‘option B’.

Flickr / Andy MangoldWe know that we can all only live one current life. If we decide to spend our time doing and being one thing, we cannot also do or be something else. If we go for a walk, we cannot also sit on the couch - at that moment in time. If we spend an hour sleeping, we cannot also spend that hour at work. If I use a dollar to buy a peach, I cannot also use that same dollar to buy an apple.

This is called ‘opportunity cost’. The cost of the best opportunity we must give up, to do what we choose to do. It’s the economic equivalent of “we can’t have our cake and eat it too”.

So how is this relevant for you and I? Well, this important concept is also related to our collective community wealth - taxation and what we spend it on. Because we only have so many dollars in the tax base, and this depends on how many of us contribute from our wages, and by how much. It was a sad day when I realised that the government doesn’t in fact just print money to build our roads - but what we pay [in tax], is what we get back.

Therefore, this concept of opportunity cost is important to remember for at least two reasons:

Flickr / Moyan Brenna) If we pay less and less tax, or avoid tax to spend the money on ourselves, the opportunity cost of this is that we cannot then spend that same sum on collective investments - such as hospitals, schools, roads, parks and more.

Subsidies for primary school or university fees, medical benefits or roads are the opportunity costs of that abolished tax, income tax cut or tax avoiding behaviour.

b) The same is true of spending. If we spend our precious tax dollars on one thing, we cannot spend those same dollars on something else. Prioritisation based on sound, progressive ideology therefore becomes crucial. If we spend money on tax rebates for large businesses or on short-lived bonuses that aid only a few, we cannot spend the same dollars on important investments for our current and future societies.

These opportunities, becomes the opportunity cost.

What’s the point?

I don’t need to say that it is a dark time in politics - for many nations. But keeping the concept of opportunity cost in mind is helpful when we go to the polls or voice our desires on collective investments. Every choice we make, excludes another.

Rapid changes are underway in our health, education and infrastructure sectors. At this time of economic pressure and with some major challenges ahead in this dawned century, it is crucial to reflect and prioritise on what we spend our own personal wealth on; what of that we contribute to a collective good; and how we spend that social capital.

Spending money at the population level requires collective investment as a prerequisite - and with a finite fiscal pot, every dollar we spend must be spent wisely.